PF&M AT A GLANCE
What is a liability form doing in the Commercial Property Program?
Legal liability on specific property items can fit into either the Commercial General Liability or the Commercial Property forms. ISO chooses to provide limited "universal" coverage under the Commercial General Liability and broader "specific" coverage under the Commercial Property coverage. The form CP 00 40 Legal Liability Coverage is designed to cover very specific situations that have arisen because of very specific contractual obligations. The coverage has most of the characteristics of a property coverage form with some of liability features added in.
Before selecting this coverage form, it is helpful to explore the other options available to the insured, in order to determine the most appropriate form to use in covering real and personal property legal liability.
1. Commercial Property Option
Building and Personal Property Coverage Form CP 00 10 covers buildings and business personal property in which the named insured has a financial interest. If there is no financial interest, there is NO COVERAGE except for the following two Personal Property exceptions:
a. If there is a lease agreement that requires insurance coverage for business personal property that is used by the insured, there is coverage as a part of the business personal property.
b. If a limit is shown for Property of Others on the Declarations, there is coverage for business personal property that is in the care, custody and control of the insured but only for the limit and the cause of loss form shown.
When this form is used for property of others, there are no features of the liability policy. There is no supplementary coverage for defense and other situations that can arise because of a breach of contract. The property loss settlement conditions and all other property conditions apply.
2. Inland Marine Option
The Commercial Inland Marine Bailees Customers Coverage Form is a very attractive option for personal property that is in the care, custody or control of the insured. Since this coverage form is a noncontrolled form, it can be modified to meet many of the concerns the insured might have. However, this is still not a liability contract and there is no defense included if the customer is unhappy.
3. Commercial General Liability Option
Commercial General Liability Coverage Form CG 00 01 excludes property damage coverage for all property that is in the care custody or control of the insured. However this exclusion is modified:
a. If a property is rented to the insured, there is property damage if the loss is due to fire, up to the Damage to Property Rented to You limit.
b. There is property damage coverage for causes of loss other than fire, for any premises where the insured is renting or occupying for less than seven days. (The limitation on the fire is to make sure there is no double dip coverage since the fire coverage is payable in item a. above.) However, the limit of liability is still the Damage to Property Rented to You limit.
The Damage to Property Rented to You limit is subject to the occurrence limit which is subject to the aggregate limit. Therefore, if this limit is used, the aggregate is eroded. If the limit is increased significantly, the occurrence must also be raised as well as the aggregate in order to have sufficient limits.
Bear in mind that in most cases the only cause of loss that is included is fire.
The options listed above all have their place and should be utilized. However, when there is a significant real or personal property legal liability exposure, the only form that specifically covers the entire exposure, is Legal Liability Coverage Form, CP 00 40. The highlights of the form are:
1. Coverage can be provided for Building, Business Personal Property or both.
2. Limit is set on the Declarations for whatever limit is indicated without any impact on other coverages.
3. Cause of Loss can be chosen as required by the specific contract.
4. Supplementary Payments that provide for defense expenses outside the limit of liability are included.
While this form can be used effectively to cover a particular exposure, remember there are limitations. It is applicable to specific locations, buildings and coverage type. Therefore, it is important that the fire legal liability coverage provided in the CGL continue in place for those unforeseen times when coverage is necessary for temporary situations and other locations that are not listed on the Legal Liability Coverage Form.
Please note that this is only an overview of this coverage. A thorough discussion of this coverage form may be found in The Rough Notes Company's PF&M Analysis.
Agency OnLine subscribers, please refer to PF&M Section 135.4-2, Legal Liability Coverage Form Analysis for more in-depth discussion on this coverage part. Also read PF&M Section 270.4-2, Commercial General Liability Coverage Analysis for a review of the Commercial General Liability discussions and PF&M Section 142.2, AAIS Bailees Coverage Form for a review of the Bailees Coverage Form implications. *